Utility Stocks Could Shock Dividend Investors

Dividend-oriented ETFs have outperformed thanks to their large helping of utility stocks. But investors are in for a surprise when the sector slows. How to choose a fund now.

By

Lawrence C. Strauss

July 30, 2016

It has been an electric year for dividend exchange-traded funds—many have outperformed the Standard & Poor’s 500 index in the past 12 months. These once-staid income tools have looked more like growth funds, helped by their large stake in hot utility stocks.

The higher a fund’s allocation to utilities, the bigger its outperformance. The $1.1 billion PowerShares High Yield Equity Dividend Achievers Portfolio ETF (ticker: PEY), which has more than 20% of its assets in utility stocks, is up 24% over the past 12 months. The...